Mental Health Claims Driving Sharp Rise in Insurance Premiums
Australians are facing steep increases in the cost of personal risk insurance, as a surge in mental health claims forces major funds to reprice their policies.
Premium Hikes Across the Sector
AustralianSuper has informed members that premiums for total and permanent disability (TPD) cover would increase by up to 40%, citing rising claim payments over the past year. CareSuper confirmed premiums for its most common cover type were rising by almost 30%, following three years of no increase.
"Even with these increases, most members with basic age-based cover will be paying lower insurance premiums than they were in 2022." — AustralianSuper spokesperson
The Mental Health Crisis in Claims Data
Zurich Australia reports that mental health now accounts for 25% of all TPD claims, with almost 50% of claims mentioning mental health as a secondary issue.
"We are witnessing a profound increase in the prevalence and severity of mental illness in Australia... At Zurich, mental health accounts for a quarter of TPD claims, with almost half of all TPD claims also mentioning mental health as an associated struggle or secondary issue." — Tim Kane, Zurich Australia retail head
The Council of Australian Life Insurers (CALI) reveals a stark picture:
- Mental health claims have doubled over five years to $2.4 billion
- Australians in their 30s are now more likely to claim for permanent disability due to mental ill-health
- Claims in this age group have spiked by more than 700% over the past decade
"Mental ill-health is now the No.1 reason why Australians are turning to life insurers to claim when they're permanently unable to work... The rate of claims for this age group has spiked by more than 700 per cent over the past decade." — Christine Cupitt, CALI chief executive
Why Premiums Are Rising
HLB Mann Judd advisory group analysis explains the mechanics: "When claim frequency rises, claim durations lengthen or claim sizes increase, insurers must reprice the pool... That repricing is often experienced as premium increases across cohorts."
The increased claim frequency and severity are affecting the pooled insurance system, leading to widespread repricing. These increases add to the cost-of-living pressures already faced by Australian households.
A Controversial Proposal
CALI has submitted to the Life Insurance Code of Practice Review that insurers should be able to apply blanket mental health exclusions in standard policies.
This would allow upfront restrictions rather than individual assessments — a move that consumer advocacy groups strongly oppose.
"Mental health-related cover and claims are one of the most pressing consumer issues in life insurance... people living with mental health conditions... find it more difficult than others to access many forms of insurance." — Joint Consumer Groups submission (including Consumer Action Law Centre and UNSW Centre for Social Research in Health)
What's Next
The Life Insurance Code of Practice Review is considering final recommendations by June 30. The outcome will determine how mental health coverage is handled in standard insurance policies, potentially reshaping access to coverage for millions of Australians.